WORLD FOREX: Dlr Mixed; Euro Up Despite Higher Risk A

LONDON (Dow Jones)--Renewed concerns over financial stocks are keeping risk aversion high but giving currencies little direction in Europe Thursday.

The dollar is mixed while the euro is slightly higher after the latest purchasing managers' indices from the euro zone came in stronger than expected.

The pound, meanwhile, has managed to stage a rebound after the heavy losses sustained after Wednesday's U.K. budget increased concern about the country's ability to fund its deficit.

Earlier hopes that the worst may be over for the U.S. banking community were dashed late Tuesday when Morgan Stanley reported that its first-quarter losses were much larger than anticipated.

This knocked U.S. stocks, with the Dow Jones Industrial Average losing 1.0%. By the time Asian trading came around, sentiment had improved, helped in part by news that Credit Suisse had posted a healthy CHF2 billion net profit during the first three months of the year. In Tokyo, the Nikkei ended with a 1.4% gain.

However, risk aversion quickly returned as reports in the Japanese press suggested that Nomura Holdings and Mizuho Financial Group are both facing hefty losses for the last financial year.

Analysts said this means the market will now focus even more on the U.S. banking stress tests results that won't be released until early next month.

"The market looks unlikely to sound the all clear on the sector until it has further details and information about U.S. stress tests on banks," said Stuart Bennett, senior foreign exchange strategist with Calyon Credit Agricole in London.

By the time trading started in Europe, stocks were mixed in a narrow range, with attention turning to the latest U.S. housing market data to see if that provides any evidence of an upturn. The consensus forecast is for existing home sales to have fallen 0.4% last month after a 5.2% rise the month before.

The euro, meanwhile, got some good news from the euro zone PMIs, with the composite index rising to 40.5 this month from 38.3 in March. The market had been expecting a bounce to 39.0.